Inflation Pressures Are Easing but Rate Cut Forecast Remains Uncertain

The New Year is beginning where the old one ended -- with uncertainty about when – or whether – the Federal Reserve will begin cutting interest rates.

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Moving to curb the rise in “strategic defaults,” Fannie Mae intends to impose a seven-year ban on new mortgage loans for borrowers who walk away from mortgages they could potentially afford to repay. The new rules, announced last month, require borrowers to negotiate “in good faith” with their lenders to obtain an affordable repayment plan.

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Concerns about the demise of overdraft protection programs, and the loss of fee income for banks resulting from it, may be overstated. After surveying more than 1,300 consumers nationwide, ACTON Market Intelligence found that 58 percent of them will, in fact, opt out of overdraft protection when given the opportunity to do so. But the vast majority of bank customers who use the overdraft service will opt in, the survey found, and they will pay a higher fee, if necessary, in order to continue the service.

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We’re looking at a “yes-but” economy. Yes, many sectors are improving steadily, but the improvements are: a) Not as great as analysts predicted; b) offset, or likely to be, by other negatives; c) too fragile to be sustained; or some combination of all of the above. Consider these examples from recent business news reports:

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Mortgage delinquency rates increased in the first quarter, up 59 basis points from the fourth quarter and 94 basis points above the year-ago-level. But the rate at which lenders are initiating foreclosure actions declined by 14 basis points (2 percent) year-over-year. So is the delinquency/foreclosure picture getting better or worse? Good question, with statistical evidence to support either conclusion.